tiny salary but lump sum for a house deposit means SLC want half son's salary's worth this year

poseidon1

silvercar said:

Wirebird said:

poseidon1 said:

Wirebird said:

silvercar said:

I'm making some assumptions here, correct if wrong. Is your son in England? and as an entry level teacher I'm thinking a recent graduate, so probably a plan 2 loan. The threshold for repayment in 2024-25 was £27,295. So he would pay 9% of anything above that. So if his only income is a £22,000 salary his total slc repayment would be £5,823.45. Even if he had other income and so had reached the threshold, the £70k trust fund could only give a max repayment of 9% of that, so £6,300. 

If he has a bill of £11k, that does suggest, either he has unpaid student deductions or there is a payment of account included. This is usually half the expected payment due for the following year, so that would be a max of £3,150 giving £8,973.45. 

It may well be that the £11k quoted includes some income tax on the trust fund payment that hmrc are assuming will be annual income, so again includes a payment on account for the 2025-26 year. There is a box on the self assessment form that you can reduce a payment on account if you don't expect such high income next year. Then put an explanation in the 'notes' box as to why you have made the adjustment.

If the payment on account is included in the £11k, it suggests the tax for the 2024-25 year is around the £7,333 mark. One option would be to ask the trust fund to release more money to be able to pay this bill. Particularly as arguably if needing a £70k house deposit, he should have requested enough from the fund to pay the deposit AND any tax due on it.

I will do the calcs so thanks but unfortunately it's a plan 1 and a plan 2 (undergrad and postgrad) which are added together; I understand there is a cap on the plan 1 but not the plan 2. I am thinking that basically, this generation really does have it bad compared to mine!! As others have queried, this is not trust income, but a chargeable event; the trust was transferred to him as sole beneficiary so there are no other funds. But this breakdown is helpful thanks.

Helpful to have now established that the mention of a trust distribution was a bit of a red herring and not especially  germane to your son's predicament.

However, you indicate professional advice was taken ( I assume before the bond was encashed), and an estimate of the tax/ loan repayment arising  would only be around £3,000.

Seems to me if this was paid for advice provided in writing by the tax adviser after being supplied with all the relevant /accurate background details, and your  son then acted  to his detriment  in reliance of said advice, this should in theory be grounds for a compensation claim against the adviser concerned. Certainly, I would expect this to be the case had this been my old firm providing what transpired to be inaccurate advice in similar circumstances.

Be that as it may, you may find the following case study for 'SImon'  ( the student) of interest, relating as it does to the  advisory process that should have been undertaken on your son's behalf,  in ascertaining his student loan repayment position depending on the quantum of the expected bond gain on encashment.

https://professionalparaplanner.co.uk/technicalzone/technical-chargeable-gains-and-student-loans/

Bear in mind had the enormity of the potential liabilty been properly identified from outset, encashment of the bond could have been staggered over different tax years to mitigate/reduce his tax outcome, as indicated in the above article.

Amazing, this article is spot on and very helpful (though too late for us!)

Not too late to adjust the payment of account for next year, that should reduce the £11k by about a third. 

Just a point of clarification, no part of the £11k liabilty should have included a future payment on account on the repaid SLC. That is a one time calculation in the tax  year it occured with no assumption it would reoccur subsequently - explained below -

https://www.litrg.org.uk/tax-nic/student-finance-and-tax-system/student-loan-repayments/self-assessment-student-loan-repayments#6

Similarly there are no payments on account attributable to  income tax payable on the investment bond chargeable event gains for the same reason.  There was no other income mentioned by the OP attributed to the son which could have triggered POAs, since it transpired that intial mention of a 'trust distribution' was incorrect.

It should be clearly  apparent from the HMRC statement of account of tax due, whether any part of it includes POAs.